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New Improved Minnesota State Exemptions

Minnesota shields your home and necessities of life from creditors.

By Dave Kelly, Minnesota Bankruptcy Lawyer

Historically Asset Protection was Sadly Inadequate

If you have been watching the videos on my channel or reading my blog posts, you may have come across the ones where I whine about how poor and porous the Minnesota state exemption statute has been. Up until this year what we had in this state for an exemption statute was a bit of an embarrassment. The only electronics exempted were a phonograph, a radio and a TV. Computers were not exempt. Neither were cell phones, tablets or any other electronic devices.

There was no jewelry exemption except for wedding rings, and that was limited to rings actually exchanged at a wedding ceremony. Things we consider necessities in this climate, such as riding lawn mowers and snow blowers, were not exempt. Over the years there were several attempts to update the statute, which for the most part failed. Until now.

Major Exemption Reform Now in Effect

On August 1st a massive update went into effect. Finally! It is now possible to file a Chapter 7 bankruptcy using the Minnesota state exemptions and still keep most if not all of the necessities of life. Here are some of the items that have been either added or expanded upon:

1.    The family Bible, Torah, Qur’an, prayer rug, and other religious items in an aggregate amount not to exceed $2,000 in value. (550.37, Subd. 2) Before the only exemption was for the family Bible.

2.    A personal library in an aggregate amount not exceeding $750.  (Subd. 2a) This is about the same as the old provision except a dollar amount has been added. Without the dollar amount this provision was of little value because it was probably unconstitutional. The Minnesota constitution says that the legislature can pass laws exempting a reasonable amount of property. Our court has said this means that if a limit of some kind on the amount exempted is not specified, it’s not constitutional.

3.    Musical instruments in an aggregate amount not exceeding $2,000. (Subd. 2b) This is also not new except that a dollar amount has been added. Now the exemption can be used because it should now be in compliance with our state constitution.

4.    All public assistance based on need and the earnings or any person who is a recipient of public assistance. (Subd. 14) This section has been amended to specifically include certain tax credits including the Minnesota renter’s credit.

5.    The household goods exemption has been expanded to include computers, tablets, printers, cell phones, smart phones, and other consumer electronics. (Subd. 4b) Previously there was almost no exemption for electronic devices. A provision for household tools and equipment – such as lawn mowers and snow blowers – was also added. Previously riding lawn mowers and snow blowers were not exempt. (Subd. 27)   

9.    In the event that your wages are garnished: There is an exemption for 75%, 85% or even 90% of your disposable earnings, based on a complicated sliding scale. It depends on how much is earned compared to the minimum wage. (571.922) These limits don’t apply to child support. But watch out: The sliding scale with the 85% and 90% limits doesn’t go into effect until April 1, 2025, and then only for legal actions started after that date.  Until then the limit for most people is a flat 75%.

10.    Debtor’s interest in jewelry up to a value of $3,062.50. Previously there was no exemption at all for jewelry, except for wedding rings.

11.    One motor vehicle to the extent of a value not exceeding $10,000. This is double the previous exemption.  (Subd. 12a) 

12.    Last but not least.  Here’s what might be the best thing given to us by the legislature in 2024:  a wild card exemption, which can only be used in bankruptcy, in the amount of $1,500.  If you are filing a bankruptcy, this can be used to exempt up to another $1,500 of any asset that doesn’t fit under one of the other categories.

Minnesota Chapter 7 Now Relatively Painless

Between these new or expanded exemptions and the old exemptions, I am thinking that most of my clients who need to use state exemptions will now find a Chapter 7 bankruptcy to be relatively painless. In many cases the only thing that will still not be exempt will be tax refunds. For a more complete discussion of Minnesota state exemptions, check out exemptions page.

Better call Dave. 952-544-6356.

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Top 7 Bankruptcy Myths: Myth No. 4 – You Can Choose Which Debts to List

By Dave Kelly, Minnesota Bankruptcy Lawyer

No Such Thing as a Partial Bankruptcy

I keep hearing from people who want to file a partial bankruptcy. The trouble is that bankruptcy is a 100% deal. If you are in at all you have to be all in. Often someone will call me and what’s on their mind is that one creditor who won’t leave them alone. All their financial affairs seem to be in order except for one creditor. What they want to do is somehow file just on that creditor and leave the rest of their debts alone. The trouble is that the law won’t allow you to do that. There is no such thing as a partial Chapter 7 or Chapter 13 bankruptcy.

All Creditors Must Be Treated (or Mistreated) Equally

In Chapter 7 or Chapter 13 bankruptcy, you are required to list all of your debts and all of your assets. You are not allowed to say you want to get rid of certain unsecured debts but still pay others. The authors of the bankruptcy code believed in equality. It has always been a general principle of bankruptcy law that all the unsecured creditors are to be inconvenienced equally. If there are assets to be distributed to the unsecured creditors, they each get a proportionate share based on the amount of the debt.

Debts You Need to Keep

There may be certain debts that you need to keep, such as your car loan or your mortgage. If you want to keep your car, you have to keep paying the car loan. If you want to keep your house, you have to keep paying your mortgage. The car loan and the mortgage have to be listed in the bankruptcy, but usually you can make arrangements to keep paying them anyway.

Notice that above, where I was talking about treating creditors equally, I was talking about unsecured creditors. Secured debts are a different matter. Secured debts such as a home mortgage or a car loans are considered to be necessities of life. The bankruptcy trustee will usually expect you to keep paying them. If the secured debt is for a boat or a motorcycle, however, you will probably be expected to stop paying and surrender the collateral to the lender. You can’t get away with claiming you are too poor to pay your creditors EXCEPT you can still afford the loan for a boat or motorcycle. Take a look at my post about Harleys. Also see my post about boats, motorcycles and horses.

Keeping Your House and Car

If you want to keep your house or your car or both, the bankruptcy trustee will be fine with you continuing to make payments on the mortgage or car loan. There is a thing called a reaffirmation agreement which will reinstate the debt as if the bankruptcy never happened. Generally I am against having my clients sign such agreements. They usually have to be approved by a judge, and the judges don’t like them either. Ordinarily the lender will be glad to receive the payments and glad to let you keep the collateral, so the reaffirmation is not needed. Here’s what I had to say about reaffirmations in an earlier post. Also check out my pages about keeping your car and keeping your house.

Debts You Can’t Get Rid Of

There might be some other debts that you would like to get rid of, but the bankruptcy won’t make them go away. Student loans and recent tax debts would usually be in this category. A good lawyer will explain to you which debts are going away and which are not; and will also explain common tactics for what to do with the ones that are not going away.

Better call Dave: 9 52-544-6356

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Top 7 Myths About Bankruptcy: Myth No. 3 – My Credit Will Be Ruined For 10 Years or More

Credit report obtained by lawyer

By Dave Kelly, Minnesota Bankruptcy Lawyer

I don’t claim to be a credit expert. What I know about credit and the effect of bankruptcy filing on it is what I hear from my clients. Almost everything I know is hearsay. It would not be admissible as evidence in court. But I’ve heard the same thing many times and from many different people. I may have some wisdom on the subject that I can pass along.

Won’t Bankruptcy Wreck My Credit?

One of the most common questions I hear is on the phone is “won’t filing bankruptcy wreck my credit forever?” Typically these callers are deep in debt. They are spending all their energy trying to juggle various credit accounts – accounts that they will never be able to pay. They may be using credit to pay credit, taking cash advances on one to make payments on another. The juggling act gets to the point that it is hard to think about or imagine anything else.

The answer to the question is NO. It is true that the bankruptcy filing will show on your credit report for ten years. But it is not true that your credit will be harmed for that whole time.

You’ll Get Credit Offers Right After Your Bankruptcy is Filed

Almost as soon as the case is filed, there are predatory lenders who will offer you credit cards and car loans. The terms for these will be terrible. Interest rates will be high, late fees will be high, and credit limits will be low. It is best to avoid these credit offers if you can. My advice as a general rule usually is stay away from these offers and live without credit for a while. One exception might be when you need a credit card for work or for essential travel. If you do get such a card, it’s important to pay it off every month. Don’t let them get their hooks into you again.

Another exception would be when you just have to get another car. Surrendering your previous car might have been necessary. You may have been really up-side-down on the loan, or you may have had a catastrophic mechanical issue. But now the only way to get another vehicle might be to get one of the loans you are being offered.

Three Years After Bankruptcy

Your credit prospects will improve with time. Within one year after your bankruptcy, you may be surprised to see your credit score going up. At first that doesn’t necessarily mean that you will be eligible for much. But after a couple more years of clean living, you will start noticing that your credit has bounced back. At about the three year mark after the case is completed, I will typically get a phone call from my former clients. My clients tell me that they are about to refinance a mortgage, buy a house or buy a car. There is a loan officer who says the loan will be approved, but first some details about the bankruptcy are needed. This is info that I can email. They thank me for my help in getting the loan. Also they usually tell me that things are really going well and they are glad they did the bankruptcy.

There is a point somewhere between three and five years after the case is done where the bankruptcy just doesn’t affect credit any more. The greatly improved debt to income ratio may even result in much better credit than before.

Credit Might Not Be Helping You

Maybe your credit looks pretty good right now. But if you are doing a juggling act to keep it up, it might be hurting you more than helping. Imagine what it would be like to get off the treadmill and be free of all that debt. If you could just get rid of all that debt, there wouldn’t be such a great need for more and more credit. Perhaps it’s time to call someone to explore the fresh start that bankruptcy offers.

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Top 7 Myths About Bankruptcy: Myth No. 1 – Everyone Will Find Out That I Filed Bankruptcy

Gossip about your bankruptcy is very unlikely.

By Dave Kelly, Minnesota Bankruptcy Attorney

This is the first in a series about what I consider to be the top seven bankruptcy myths. There are lots of rumors and misconceptions out there. I keep hearing the same ones over and over. One common idea – which is almost never true – is that everyone in your life is going to find out you filed bankruptcy.

Personal Bankruptcies Are No Longer Published in The Newspaper

Many of my clients have one or more side hustles such as selling tupperware or driving for door dash. If they happen to have set up an LLC, a small corporation or even just registered a trade name, then we often have to include the trade name in the heading of the bankruptcy case. In the eyes of the StarTribune, that used to make it a business bankruptcy. They used to publish a list of business bankruptcies – if the case was filed in Minneapolis or St. Paul – in their Monday business section. There was hardly anybody who ever looked at that anyway, but they appear to have stopped doing that in 2021. When I search the StarTribune web site for bankruptcy listings like that, I don’t see any after June of 2021.

Regular run-of-the-mill consumer bankruptcies never were published anywhere as far as I know; one exception was that cases for people living in the Mankato area used to be published in the Mankato Free Press. I have searched the Mankato Free Press web site, and what I see is that they seem to have stopped publishing bankruptcies years ago. That kind of stuff makes for very boring reading and takes up valuable space.

Bankruptcy Filings Are Public – But Not Easy to Find

It is true that bankruptcy filings are public information. But to access the filings in the bankruptcy court you need to have a Pacer account. Pacer is a lot like Paypal and is used to pay the per page fee to look at filings in federal courts. You have to really want and need to have access to those court filings to go so far as to set up an account like that, and few people do it. This means that very few people and very few entities actually have access to the filings.

There is a list of people or companies that are required to be notified of your bankruptcy filing. All the creditors have to be notified. Your landlord will be notified. So will any co-debtors. The landlords usually don’t care as long as you keep paying your rent. Your employer will not be notified unless the employer is also a creditor. Your credit report will show the bankruptcy filing – but that is protected by various privacy laws and is not available to the public.

Friends, Neighbors and Relatives Usually Will Never Know

Outside of those on the official notification list, it would be unusual for anybody to find out unless you tell them. The idea that all your friends, neighbors and relatives will know you filed bankruptcy is one of the most common myths.

Please subscribe to my channel. Better Call Dave. 952-544-6356

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Fresh Increases in Minnesota State Exemptions

Exempt property claim form

By Dave Kelly, Minnesota Bankruptcy Lawyer

In a Chapter 7 bankruptcy if you want to keep your assets and belongings, they have to be claimed as exempt under an applicable exemption law. In Minnesota there are two exemption laws to choose from, the federal list and the state list. I have written a lot elsewhere about why one would choose one list or the other. That is not my topic here. I just want to talk about how most of the state exemptions are going up in a few days. The federal exemptions were increased on April 1st this year. I covered that in a recent blog post.

On July 1st in even numbered years, certain parts of the Minnesota state exemptions are updated to keep up with inflation. Since this year is even numbered, we are about to have another update. I am glad to see that all the numbers which can be changed are going up.

Summary of Minnesota Exemption Increases

  • Household furniture, household goods increased from $11,250.00 to $11,700.00.
  • Wedding rings increased from $3,062.50 to $3,185.00.
  • Tools of the trade increased from $12,500.00 to $13,000.00.
  • Life insurance benefits increased from $50,000.00 to $52,000.00.
  • Additional dependent insurance benefits increased from $12,500.00 to $13,000.00.
  • Motor vehicle increased from $5,000.00 to $5,200.00.
  • Insurance policies increased from $10,000.00 to $10,400.00.
  • Employee benefits (retirement accounts) increased from $75,000.00 to $78,000.00.
  • Homestead (limited to 160 acres) increased from $450,000.00 to $480,000.00.
  • Homestead used primarily for agriculture increased from $1,125,000.00 to $1,200,000.00.

Our Minnesota State Exemptions Remain Far from Perfect

For a more complete rundown on how this all works, take a look at my exemptions page. These state exemptions leave a lot to be desired. They have a lot of gaps which seem to always allow the bankruptcy trustees to require my clients to buy back some of their stuff. Most jewelry is not exempt. Most electronics are not exempt. There is no exemption that covers tax refunds, and there are issues with money in bank accounts. I have ranted about this on this blog before. The legislature needs to fix it but they don’t.

The Minnesota state exemptions are primarily good for one thing. They allow you to protect lots of equity in your homestead, unlike the federal exemptions which are very limited in that area. I don’t think any of the increases here have kept up with the real rate of inflation; so in fact we seem to be loosing ground.

If you don’t properly claim any asset as exempt, you risk losing it to the trustee. It’s tricky and risky and should not be attempted without a lawyer.

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Things to Avoid Before Bankruptcy: Item 7 – Recent Debt Run-up

Credit Card Debt

By Dave Kelly, Minnesota bankruptcy attorney

This is the last in my series of articles about the top seven things that in my opinion you should avoid doing prior to filing a Chapter 7 or Chapter 13 bankruptcy. My list is not exclusive. There are lots of other things to be avoided. On one web page I saw a list of 33 things to avoid. All I am saying is that this list is my top seven. Others may disagree on my ranking of these.

Why is Debt Run-up Before Bankruptcy a Problem?

The reason you should avoid running up debt right before filing a bankruptcy is that doing so may result in an objection to your discharge from one of the creditors. Typically this would not be an objection to your entire bankruptcy case, but just an objection to the one particular debt owing to that particular creditor. The larger the debt and the closer to the filing date of the bankruptcy it was incurred, the greater the risk.

The creditor will review the account and use the history of the account to try and prove that you had no intent of paying the debt at the time you ran it up. If you had no intent to pay when you incurred the debt, the creditor can object on the grounds of false pretenses and fraud. The evidence that the creditor will use will usually be entirely circumstantial . Basically they put together their case and ask the judge “what’s this look like to you?” Often it can be pretty obvious, other times not.

Worse if for Luxury Good or Services

The creditor’s case is always stronger if the debt is for luxury goods and services, especially if the purchases spike right before the bankruptcy is filed. When somebody who hardly ever goes farther then Duluth suddenly decides they need a trip to Europe, it looks suspicious. Expensive restaurants, large purchases of alcohol, spas and pedicures don’t look so good either. On the opposite end of the spectrum is medical expense. People usually don’t have control of medical costs, and the medical providers almost never object.

What the Law Presumes

Ordinarily the creditor has the burden of proof when they file an objection to discharge. This means that the creditor has to prove their case and the debtor does not have to necessarily prove anything. The bankruptcy statute has two situations, however, where certain presumptions shift the burden of proof to the debtor. Here they are:

1.  Any consumer debt for goods and services owed to a single creditor in excess of $725 incurred within 90 days of filing is presumed to be for luxury items. With the proper evidence in your favor, the presumption can be rebutted; but it’s best just to wait so you don’t have to go through a potential objection from the creditor.

2.  Cash advances in excess of $1,000 made within 70 days of filing are presumed non-dischargeable. Again, if this has happened it may be best to wait until the time period has passed before filing.

What this Really Means

As a practical matter what does all this mean? In my opinion it means that you might not want to file a bankruptcy if you have run up a debt on any one account in an amount of more than 4 or5 thousand dollars in the past six months. If it’s much less than that, the creditor probably can’t afford to do an objection. If it’s much older than that, it’s might be too hard for the creditor to prove. This kind of recent debt runup doesn’t necessarily mean you should not file a bankruptcy. But it could be a good reason to delay the filing for a while.

Disclaimer

This post is for general information purposes only and is not legal advice. It does not create an attorney-client relationship. Consult the attorney or your choice about the details of your case.

 

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Things to Avoid Before Bankruptcy: Item 1 – Repaying a Debt to a Close Friend or Relative

Protect your friends and relatives

By David J. Kelly, Minnesota Bankruptcy Lawyer

It has always seemed to me that most of the things you SHOULD NOT do before filing bankruptcy are things that in ordinary circumstances your mother would say that you SHOULD do. If you are thinking of filing a bankruptcy, it’s time to consult your lawyer and not your mother or friends or relatives.  The sooner you consult a lawyer the better.  The bankruptcy code is full of hidden traps and gotchas. 

This is the first in a series of seven blog posts about things to NOT do if you are considering filing a bankruptcy in Minnesota. This post discusses payment of a debt to an insider – usually that means a close friend or relative. It can also include a business partner or associate.

In a Chapter 7 bankruptcy amounts repaid within a year before the bankruptcy is filed on debt owing to an insider can be clawed back by the trustee. In Chapter 13 bankruptcy you have to pay extra money into your plan to cover what the trustee could have clawed back had it been a Chapter 7. Either way, this is something you want to avoid. There is a fix for the problem, but you might not like it: obtaining another loan from the person you repaid in an amount in excess of the amount you paid.

The last thing you want after your bankruptcy case is filed is for your mother or brother to receive a letter from the trustee demanding return of money you paid them.  You get the same result if you pay a debt owing to an insider by giving the insider a benefit indirectly.  Here’s a common example of how this can happen.  Let’s say you need to buy a car but you can’t get a loan to do so.  Your brother does a cash advance on his credit card and loans you the money to buy the car. Every month you make a payment on the credit card that is in your brother’s name.  In a Chapter 7 bankruptcy the trustee can go after your  brother to recover all the payments you made on that credit card within the year before filing.  In a Chapter 13 you may have to pay larger payments to cover for the amount you repaid in your brother’s name.

I always hate it when I learn that my client or potential client has just done something that is really going to make the case difficult.  The rule seems to be that they always do it just a few days before coming in to see me.  If only they had talked with me before doing that!

If this sounds complicated it is. If you are thinking of bankruptcy it is best if you consult a lawyer before you make any financial moves. I would be glad to discuss the details of your case. Call me at 952-544-6356.

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Bankruptcy Attorneys Provide an Essential Service

By David J. Kelly, Minnesota Bankruptcy Lawyer


Bankruptcy attorneys are considered to be an essential service. While I have been taking plenty of precautions, such as asking everyone to wear a mask, I am still here and ready to serve. It usually takes several meetings between myself and my clients to properly prepare a case for filing – but many of those meetings can be done by Zoom or telephone or one of the other remote communication platforms. You don’t have to wait. I would be glad to start working with you now. To begin, call me for a free telephone consultation. 952-544-6356.

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Covid-19 Update from National Association of Consumer Bankruptcy Attorneys

clorox lawyer

By David J. Kelly, Minnesota Bankruptcy Lawyer since 1976

Just received the following summary from the National Association of Consumer Bankruptcy Attorneys concerning bankruptcy provisions of the Coronavirus Aid, Relief and Economic Security Act” (CARES Act). Here’s what it did:

1. Amended the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. Check out our SBRA Resource Page for more information.

2. Amended the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.

3. Clarified that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.

4. Explicitly permitted individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

I am still here during the Covid-19 Crisis. Lawyers are considered officers of the court. As long as the bankruptcy court is open, and it is, I have to be open too. Still, I am taking every precaution. Don’t be offended if I wipe off the pen you used or anything else you touched, or if I pull my chair back and keep my distance. Also, I am learning how to use Zoom. Already have been using Hangouts and Skype. I prefer Hangouts for virtual face to face; but one can still get a lot done by just meeting remotely by old fashioned telephone. I am limiting actual visits to my office as much as possible.

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Just Updated my Blog Theme

Debt Relief, MN Bankruptcy

By David J. Kelly, Minnesota Bankruptcy Lawyer

I have grown weary of getting messages from Google that my site is not mobile friendly. I will admit that up until now I have had to squint a bit to read my blog posts. I was fearful that changing the theme of the blog would be a long and painful process, time consuming and confusing. I have found so far that it is just the opposite. The whole thing took less than an hour.

There are bound to be bugs, however, and if you notice anything that looks strange please let me know.

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